An act to amend Sections 26001, 26040, 26053, 26055, 26060.1, 26069, 26070, 26090, 26104, 26130, 26140, and 26227.9 of the Business and Professions Code, to amend Sections 11553 and 11553.5 of the Government Code, to amend Section 11357 of the Health and Safety Code, and to amend Sections 34010, 34011, 34012, 34012.5, and 55044 of the Revenue and Taxation Code, 144 and 26051.5 of the Business and Professions Code, relating to cannabis, and making an appropriation therefor, to take effect immediately, bill related to the budget.

LEGISLATIVE COUNSEL'S DIGEST

(1) The Control, Regulate and Tax Adult Use of Marijuana Act of 2016 (AUMA), an initiative statute approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances.

The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities. MAUCRSA generally divides responsibility for the state licensure and regulation of commercial cannabis activity among state licensing authorities depending on the type of license classification sought by the
applicant. MAUCRSA authorizes licensing authorities to create new state licenses relating to commercial cannabis activity that the licensing authorities deem necessary to effectuate their duties under MAUCRSA by adopting regulations to that effect. MAUCRSA requires an applicant to electronically submit fingerprint images to the Department of Justice for the purpose of obtaining information as to the existence and content of a record of state or federal convictions and arrests. Existing law requires the Department of Justice to provide a response to the licensing authority, as provided.

This bill would specify that the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health may obtain and receive, at their discretion, criminal history information from the Department of Justice and the United States Federal Bureau of Investigation for an applicant for any state license under MAUCRSA, including any license
established by a licensing authority by regulation pursuant to the authority described above. The bill would require the Department of Justice to forward all requests for federal criminal history record information to the Federal Bureau of Investigation for these purposes and to review the information and compile and disseminate a response to the licensing authority.

This bill would appropriate the sum of $10,700,000 in augmentation of Item 8570-001-3288 of Section 2.00 of the Budget Act of 2017, from the Cannabis Control Fund to the Department of Food and Agriculture for state costs in the 2017–18 fiscal year to supply proprietary plant and package radio-frequency identification tags, to be used by licensees to track cannabis and cannabis-related products, as specified.

(2) AUMA authorizes the Legislature to amend by a majority vote certain provisions of the act to implement specified substantive
provisions, provided that the amendments are consistent with and further the purposes and intent of the act.

This bill would declare that its provisions implement specified substantive provisions of AUMA.

(3) This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

The Control, Regulate and Tax Adult Use of Marijuana Act of 2016 (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities. MAUCRSA generally divides responsibility for the state licensure and regulation of commercial cannabis activity among the Department of Consumer Affairs, the Department of Food and Agriculture, and the State Department of Public Health and requires those state licensing authorities to begin issuing licenses by January 1, 2018. AUMA authorizes the
Legislature to amend its provisions with a 23 vote of both houses to further its purposes and intent.

MAUCRSA imposes various requirements on the delivery of cannabis and cannabis products, including requiring during delivery a licensee to maintain a physical copy of the delivery request, as specified, and to make it available upon request of the licensing authority and law enforcement officers. MAUCRSA defines delivery for these purposes to mean the commercial transfer of cannabis or cannabis products to a customer and to include the use by a retailer of any technology platform owned and controlled by the retailer.

This bill would revise the requirement that a licensee maintain a copy of the delivery request during delivery so that the request is not required to be physical. The bill would redefine delivery to include the
use by a retailer of any technology platform regardless of whether the technology platform is owned and controlled by the retailer.

MAUCRSA requires the driver of a vehicle transporting cannabis or cannabis products to be directly employed by a licensee authorized to transport cannabis or cannabis products.

This bill instead would require the driver of a vehicle transporting or transferring cannabis or cannabis products to be directly employed by a licensee authorized to transport or transfer cannabis or cannabis products.

MAUCRSA
authorizes a person to apply for and be issued more than one license provided the licensed premises are separate and distinct.

This bill would remove the condition that the licensed premises be separate and distinct.

MAUCRSA prohibits licensing authorities from approving an application for a state licenses if approval will violate the provisions of a local ordinance or regulation regulating licensees. MAUCRSA authorizes an applicant to voluntarily provide proof of a license, permit, or other authorization from the local jurisdiction verifying the applicant is in compliance with the local jurisdiction. MAUCRSA requires the licensing authority to notify the local jurisdiction of an applicant, as specified, and to make certain determinations with regard to the application based on the response of the local jurisdiction.

This bill would require the licensing authority to presume that
an applicant that voluntarily submits a valid, unexpired license, permit, or other authorization from the local jurisdiction is in compliance with all local ordinances unless the licensing authority is notified otherwise by the local jurisdiction. The bill would require the licensing authority to notify the local jurisdiction of the submission, as specified. The bill would make the requirements on the licensing authority with regard to notifying local jurisdictions and making specified application determinations contingent upon an applicant not providing adequate proof of compliance with local law.

MAUCRSA requires an application for a cultivation license submitted before January 1, 2019, to identify a source of water supply. MAUCRSA requires, if the water supply includes a diversion and the application is submitted before January 1, 2019, the application to identify the point of diversion and the maximum amount to be diverted by including a copy of one of a list of
specified documents, some of which must be filed with the State Water Resources Control Board before July 1, 2017.

This bill instead would require that a specified statement of water diversion and use, a pending application for a permit to appropriate water, and documentation demonstrating that the diversion is authorized under a riparian right and that no diversion occurred during a specified time period, be submitted to the State Water Resources Control Board on or before October 31, 2017, and that documentation demonstrating that the diversion is subject to certain exceptions to a specified filing requirement be submitted to the State Water Resources Control Board on or before January 1, 2019.

MAUCRSA requires that a licensed medicinal cannabis manufacturer only manufacture cannabis products for sale by a medicinal cannabis retailer.

This bill would repeal those provisions.

MAUCRSA prohibits an adult-use cannabis licensee from allowing any person under 21 years of age on its premises.

This bill would make an exception to this prohibition if the licensee holds a medicinal license and the licensed premises for the adult-use cannabis license and the medicinal license are the same.

MAUCRSA authorizes a medicinal cannabis licensee to allow on its premises any person 18 years of age or older who possesses a valid government-issued identification card and either a valid physician’s recommendation or a valid county-issued identification card for medicinal cannabis.

This bill would additionally authorize a medicinal cannabis licensee to allow a person 21 years of age or older on its premises if the licensee holds an adult-use license and the licensed premises for the medicinal cannabis license and the adult-use license
are the same. The bill would additionally authorize a medicinal cannabis licensee to allow on its premises a specified person possessing a recommendation for a person for whom he or she is a primary caregiver. The bill would authorize a medicinal cannabis licensee to sell cannabis, cannabis products, and cannabis accessories to a specified person who possesses a valid recommendation for a person for whom he or she is a primary caregiver. The bill would authorize the bureau to establish requirements for the purchase of cannabis, cannabis products, or cannabis accessories by a primary caregiver to ensure that the status of a person as a primary caregiver is verified.

MAUCRSA authorizes 3 or more natural persons, who are engaged in the cultivation of a cannabis product, to form an association for the purpose of engaging in any activity in connection with a list of specified cannabis-related activities. MAUCRSA authorizes an association to enter into all necessary and
proper contracts and agreements and to make all necessary and proper stipulations and arrangements with another cannabis cooperative or association that is formed in this or in any other state for the cannabis cooperative and more economical carrying on of its business or any part of its business.

This bill would remove the authorization to enter into contracts and agreements and make stipulations and arrangements with another cannabis cooperative or association that is formed in another state.

MAUCRSA establishes in state government a Cannabis Control Appeals Panel to review specified decisions of licensing authorities appealed by any person aggrieved by those decisions. MAUCRSA requires that the panel consist of two member appointed by the Legislature and three members appointed by the Governor, as specified. MAUCRSA authorizes the Governor
to remove a member of the panel from office and authorizes the Legislature to remove a member from office for specified reasons. MAUCRSA establishes the Cannabis Control Fund. Under existing law, licensing fees received by the state licensing authorities under MAUCRSA are deposited into the Cannabis Control Fund and fine and penalty moneys collected under MAUCRSA generally deposited into the Cannabis Fines and Penalties Account within the fund.

This bill would specify the Governor may only remove from office a member of the panel appointed by the Governor. The bill would require specified annual salaries to be paid to the chairperson and members of the
panel. This bill would appropriate $250,000 from the Cannabis Control Fund to the Cannabis Control Appeals Panel to be used for costs associated with additional panel members provided by MAUCRSA.

Existing law requires the unlawful possession of not more than 4 grams of concentrated cannabis be punished, as specified.

This bill would instead require the unlawful possession of not more than 8 grams of concentrated cannabis be punished, as specified.

Existing law imposes a cultivation tax on all harvested cannabis that enters the commercial market upon all cultivators. Existing law requires the tax to be due after the cannabis is harvested and enters the commercial market. Existing law defines the phrase enters the commercial market, for these purposes, as cannabis or cannabis product that has completed and complies with all quality assurance,
inspection, and testing.

This bill would redefine the phrase enters the commercial market as cannabis or cannabis product, except for immature cannabis plants and seeds, that completes and complies with a quality assurance review and testing.

Existing law requires a cannabis retailer to provide a purchaser with an invoice, receipt, or other document that displays the cannabis excise tax separately from the price, as specified, and includes a specified statement regarding the inclusion of the cultivation and excise taxes in the total amount of the invoice.

This bill would remove the requirement that the document display the cannabis excise tax separately from the price and would remove from the specified statement on the invoice that the cannabis cultivation tax is included in the total amount of the invoice. The bill would authorize the California Department of Tax and Fee
Administration to prescribe other means to display the cannabis excise tax on an invoice, receipt, or other document from a cannabis retailer given to the purchaser.

MAUCRSA requires the Department of Food and Agriculture, in consultation with the Bureau of Cannabis Control, to establish a track and trace program for reporting the movement of cannabis and cannabis products throughout the distribution chain that utilizes a unique identifier to be issued for each cannabis plant. Existing law requires all cultivation tax applicable to a unique identifier to be paid upon the first sale or transfer of unprocessed cannabis by a cultivator to a manufacturer, except as provided.

This bill would remove the requirement that all cultivation tax applicable to a unique identifier be paid upon the first sale or transfer of unprocessed cannabis by a cultivator to a manufacturer, as specified.

Existing law requires that a person required to be licensed who fails to pay the taxes imposed on cannabis be subject to a penalty of at least one-half the amount of the taxes not paid.

This bill would authorize relieving a person of this penalty if the California Department of Tax and Fee Administration finds that the person’s failure to make a timely return or payment is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect.

This bill would declare that its provisions further specified purposes and intent of the AUMA.

This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

Digest Key

Bill Text

The people of the State of California do enact as follows:

SECTION 1.

Section 144 of the Business and Professions Code is amended to read:

144.

(a) Notwithstanding any other law, an agency designated in subdivision (b) shall require an applicant to furnish to the agency a full set of fingerprints for purposes of conducting criminal history record checks. Any agency designated in subdivision (b) may obtain and receive, at its discretion, criminal history information from the Department of Justice and the United States Federal Bureau of Investigation.

(b) Subdivision (a) applies to the following:

(1) California Board of Accountancy.

(2) State Athletic Commission.

(3) Board of Behavioral Sciences.

(4) Court Reporters Board of California.

(5) State Board of Guide Dogs for the Blind.

(6) California State Board of Pharmacy.

(7) Board of Registered Nursing.

(8) Veterinary Medical Board.

(9) Board of Vocational Nursing and Psychiatric Technicians.

(10) Respiratory Care Board of California.

(11) Physical Therapy Board of California.

(12) Physician Assistant Committee of the Medical Board of California.

(26) Board for Professional Engineers, Land Surveyors, and Geologists.

(27) Bureau of Medical Cannabis Regulation. Control.

(28) California Board of Podiatric Medicine.

(29) Osteopathic Medical Board of California.

(c) For purposes of paragraph (26) of subdivision (b), the term “applicant” shall be limited to an initial applicant who has never been registered or licensed by the board or to an applicant for a new licensure or registration category.

SEC. 2.

Section 26051.5 of the Business and Professions Code is amended to read:

26051.5.

(a) An applicant for any type of state license issued pursuant to this division shall do all of the following:

(1) Require that each owner of the applicant electronically submit to the Department of Justice fingerprint images and related information required by the Department of Justice for the purpose of obtaining information as to the existence and content of a record of state or federal convictions and arrests, and information as to the existence and content of a record of state or federal convictions and arrests for which the Department of Justice establishes that the person is free on bail or on his or her own recognizance, pending trial or appeal.

(A) Notwithstanding any other law, the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health may obtain and receive, at their discretion, criminal history information from the Department of Justice and the United States Federal Bureau of Investigation for an applicant for any state license under this division, including any license established by a licensing authority by regulation pursuant to subdivision (b) of Section 26012.

(B) The Department of Justice shall forward to the United States Federal Bureau of Investigation all requests for federal criminal history record information received pursuant to this section. The Department of Justice shall review the information returned from the United States Federal Bureau of
Investigation and compile and disseminate a response to the licensing authority.

(A)

(C) The Department of Justice shall provide a response to the licensing authority pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.

(B)

(D) The licensing authority shall request from the Department of Justice subsequent notification service, as provided pursuant to Section 11105.2 of the Penal Code, for
applicants.

(C)

(E) The Department of Justice shall charge the applicant a fee sufficient to cover the reasonable cost of processing the requests described in this paragraph.

(2) Provide evidence of the legal right to occupy and use the proposed location and provide a statement from the landowner of real property or that landowner’s agent where the commercial cannabis activity will occur, as proof to demonstrate the landowner has acknowledged and consented to permit commercial cannabis activities to be conducted on the property by the tenant applicant.

(3) Provide evidence that the proposed location is in compliance with subdivision (b) of Section 26054.

(4) Provide a statement, signed by the applicant under penalty of perjury, that the information provided is complete, true, and accurate.

(5) (A) For an applicant with 20 or more employees, provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.

(B) For the purposes of this paragraph, “employee” does not include a supervisor.

(C) For the purposes of this paragraph, “supervisor” means an individual having authority, in the interest of the applicant, to hire, transfer, suspend, lay off, recall, promote, discharge,
assign, reward, or discipline other employees, or responsibility to direct them or to adjust their grievances, or effectively to recommend such action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

(6) Provide the applicant’s valid seller’s permit number issued pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code or indicate that the applicant is currently applying for a seller’s permit.

(7) Provide any other information required by the licensing authority.

(8) For an applicant seeking a cultivation license, provide a statement declaring the applicant is an “agricultural employer,” as defined in the Alatorre-Zenovich-Dunlap-Berman Agricultural Labor Relations
Act of 1975 (Part 3.5 (commencing with Section 1140) of Division 2 of the Labor Code), to the extent not prohibited by law.

(9) Pay all applicable fees required for licensure by the licensing authority.

(10) Provide proof of a bond to cover the costs of destruction of cannabis or cannabis products if necessitated by a violation of licensing requirements.

(b) An applicant shall also include in the application a detailed description of the applicant’s operating procedures for all of the following, as required by the licensing authority:

(1) Cultivation.

(2) Extraction and infusion methods.

(3) The transportation process.

(4) Inventory procedures.

(5) Quality control procedures.

(6) Security protocols.

(7) For applicants seeking licensure to cultivate, the source or sources of water the applicant will use for cultivation, as provided in subdivisions (a) to (c), inclusive, of Section 26060.1. For purposes of this paragraph, “cultivation” as used in Section 26060.1 shall have the same meaning as defined in Section 26001. The Department of Food and Agriculture shall consult with the State Water Resources Control Board and the Department of Fish and Wildlife in the implementation of this paragraph.

(c) The applicant shall also provide a complete detailed diagram of the proposed premises wherein the license
privileges will be exercised, with sufficient particularity to enable ready determination of the bounds of the premises, showing all boundaries, dimensions, entrances and exits, interior partitions, walls, rooms, and common or shared entryways, and include a brief statement or description of the principal activity to be conducted therein, and, for licenses permitting cultivation, measurements of the planned canopy, including aggregate square footage and individual square footage of separate cultivation areas, if any, roads, water crossings, points of diversion, water storage, and all other facilities and infrastructure related to the cultivation.

(d) Provide a complete list of every person with a financial interest in the person applying for the license as required by the licensing authority. For purposes of this subdivision, “persons with a financial interest” does not include persons whose only interest in a licensee is an interest in a
diversified mutual fund, blind trust, or similar instrument.

SEC. 3.

The sum of ten million seven hundred thousand dollars ($10,700,000) is hereby appropriated in augmentation of Item 8570-001-3288 of Section 2.00 of the Budget Act of 2017 from the Cannabis Control Fund to the Department of Food and Agriculture for state costs in the 2017–18 fiscal year to supply proprietary plant and package radio-frequency identification tags, to be used by licensees to track cannabis and cannabis-related products. Provision 1 of Item 1111-011-0001 of Section 2.00 of the Budget Act of 2017 shall be augmented in the amount of ten million seven hundred thousand dollars ($10,700,000).

SEC. 4.

The Legislature finds and declares that Section 2 of this act, amending Section 26051.5 of the Business and Professions Code, implements the substantive provisions of the Control, Regulate and Tax Adult Use of Marijuana Act by clarifying the authority of licensing authorities under the act to obtain the summary criminal history information needed to grant licenses for adult-use cannabis activities.

SEC. 5.

This act is a bill providing for appropriations related to the Budget Bill within the meaning of subdivision (e) of Section 12 of Article IV of the California Constitution, has been identified as related to the budget in the Budget Bill, and shall take effect immediately.

SECTION 1.Section 26001 of the Business and Professions Code is amended to read:

26001.

For purposes of this division, the following definitions shall apply:

(a)“A-license” means a state license issued under this division for cannabis or cannabis products that are intended for adults who are 21 years of age and older and who do not possess a physician’s recommendation.

(b)“A-licensee” means any person holding a license under this division for cannabis or cannabis products that are intended for adults who are 21 years of age and older and who do not possess a physician’s recommendation.

(c)“Applicant” means an owner applying for a state license pursuant to this
division.

(d)“Batch” means a specific quantity of homogeneous cannabis or cannabis product that is one of the following types:

(1)Harvest batch. “Harvest batch” means a specifically identified quantity of dried flower or trim, leaves, and other cannabis plant matter that is uniform in strain, harvested at the same time, and, if applicable, cultivated using the same pesticides and other agricultural chemicals, and harvested at the same time.

(A)An amount of cannabis concentrate or extract that is produced in one production cycle using the same extraction methods
and standard operating procedures.

(B)An amount of a type of manufactured cannabis produced in one production cycle using the same formulation and standard operating procedures.

(e)“Bureau” means the Bureau of Cannabis Control within the Department of Consumer Affairs, formerly named the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation.

(f)“Cannabis” means all parts of the plant Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its
seeds, or resin. “Cannabis” also means the separated resin, whether crude or purified, obtained from cannabis. “Cannabis” does not include the mature stalks of the plant, fiber produced from the stalks, oil or cake made from the seeds of the plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of the plant which is incapable of germination. For the purpose of this division, “cannabis” does not mean “industrial hemp” as defined by Section 11018.5 of the Health and Safety Code.

(g)“Cannabis accessories” has the same meaning as in Section 11018.2 of the Health and Safety Code.

(h)“Cannabis concentrate” means cannabis that has undergone a process to
concentrate one or more active cannabinoids, thereby increasing the product’s potency. Resin from granular trichomes from a cannabis plant is a concentrate for purposes of this division. A cannabis concentrate is not considered food, as defined by Section 109935 of the Health and Safety Code, or a drug, as defined by Section 109925 of the Health and Safety Code.

(i)“Cannabis products” has the same meaning as in Section 11018.1 of the Health and Safety Code.

(j)“Child resistant” means designed or constructed to be significantly difficult for children under five years of age to open, and not difficult for normal adults to use properly.

(k)“Commercial cannabis activity” includes the cultivation, possession, manufacture,
distribution, processing, storing,
laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products as provided for in this division.

(m)“Cultivation site” means a location where cannabis is planted, grown, harvested, dried, cured, graded, or trimmed, or a location where any combination of those activities occurs.

(n)“Customer” means a natural person 21 years of age or older or a natural person 18 years of age or older who possesses a physician’s recommendation, or a primary caregiver.

(o)“Day care center” has the same meaning as in Section 1596.76 of the Health and Safety Code.

(p)“Delivery” means the commercial transfer of cannabis or cannabis products to a customer. “Delivery” also includes the use by a retailer of any technology platform.

(q)“Director” means the Director of Consumer Affairs.

(r)“Distribution” means the procurement, sale, and transport of cannabis and cannabis products between licensees.

(s)“Dried flower” means all dead cannabis that has been harvested, dried, cured, or otherwise processed, excluding leaves and stems.

(t)“Edible cannabis product” means cannabis product that is intended to be used, in whole or in part, for human consumption, including, but not limited to, chewing gum, but excluding products set forth in Division 15 (commencing with Section 32501) of the Food and Agricultural Code. An edible cannabis product is not considered food, as defined by Section 109935 of the Health and Safety Code, or a drug, as defined by Section 109925 of the Health and Safety Code.

(u)“Fund” means the Cannabis Control Fund established pursuant to Section 26210.

(v)“Kind” means applicable
type or designation regarding a particular cannabis variant or cannabis product type, including, but not limited to, strain name or other grower trademark, or growing area designation.

(w)“Labeling” means any label or other written, printed, or graphic matter upon a cannabis product, upon its container or wrapper, or that accompanies any cannabis product.

(x)“Labor peace agreement” means an agreement between a
licensee and any bona fide labor organization that, at a minimum, protects the state’s proprietary interests by prohibiting labor organizations and members from engaging in picketing, work stoppages, boycotts, and any other economic interference with the applicant’s business. This agreement means that the applicant has agreed not to disrupt efforts by the bona fide labor organization to communicate with, and attempt to organize and represent, the applicant’s employees. The agreement shall provide a bona fide labor organization access at reasonable times to areas in which the applicant’s employees work, for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment. This type of agreement shall not mandate a particular method of election or certification of the bona fide labor organization.

(y)“License” means a state license issued under this division, and includes both an A-license and an M-license, as well as a testing laboratory license.

(z)“Licensee” means any person holding a license under this division, regardless of whether the license held is an A-license or an M-license, and includes the holder of a testing laboratory license.

(aa)“Licensing authority” means the state agency responsible for the issuance, renewal, or reinstatement of the license, or the state agency authorized to take disciplinary action against the licensee.

(ag)“Manufacture” means to compound, blend, extract, infuse, or otherwise make or prepare a cannabis product.

(ah)“Manufacturer” means a licensee that conducts the production, preparation, propagation, or compounding of cannabis or cannabis products either directly or indirectly or by extraction methods, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis at a fixed location that packages or repackages cannabis or cannabis products or labels or relabels its container.

(ai)“Medicinal cannabis” or “medicinal cannabis product” means cannabis or a cannabis product, respectively, intended to be sold for use pursuant to the Compassionate Use Act of 1996 (Proposition 215), found at Section 11362.5 of the Health and Safety Code, by a medicinal cannabis patient in California who possesses a physician’s recommendation.

(aj)“Nursery” means a licensee that produces only clones, immature plants, seeds, and other agricultural products used specifically for the propagation and cultivation of cannabis.

(ak)“Operation” means any act for which licensure is required under the provisions of this division, or any commercial transfer of cannabis or cannabis products.

(al)“Owner” means any of the following:

(1)A person with an aggregate ownership interest of 20 percent or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, or encumbrance.

(2)The chief executive officer of a nonprofit or other entity.

(3)A member of the board of directors of a nonprofit.

(4)An individual who will be participating in the direction, control, or management of the person applying for a license.

(am)“Package” means any container or receptacle used for holding cannabis or cannabis products.

(an)“Person” includes any individual, firm, partnership, joint venture, association, corporation, limited liability company, estate, trust, business trust, receiver, syndicate, or any other group or combination acting as a unit, and the plural as well as the singular.

(ao)“Physician’s recommendation” means a recommendation by a
physician and surgeon that a patient use cannabis provided in accordance with the Compassionate Use Act of 1996 (Proposition 215), found at Section 11362.5 of the Health and Safety Code.

(ap)“Premises” means the designated structure or structures and land specified in the application that is owned, leased, or otherwise held under the control of the applicant or licensee where the commercial cannabis activity will be or is conducted. The premises shall be a contiguous area and shall only be occupied by one licensee.

(aq)“Primary caregiver” has the same meaning as in Section 11362.7 of the Health and Safety Code.

(ar)“Purchaser” means the customer who is engaged in a transaction with a licensee for purposes
of obtaining cannabis or cannabis products.

(as)“Sell,” “sale,” and “to sell” include any transaction whereby, for any consideration, title to cannabis or cannabis products is transferred from one person to another, and includes the delivery of cannabis or cannabis products pursuant to an order placed for the purchase of the same and soliciting or receiving an order for the same, but does not include the return of cannabis or cannabis products by a licensee to the licensee from whom the cannabis or cannabis product was purchased.

(at)“Testing laboratory” means a laboratory, facility, or entity in the state that offers or performs tests of cannabis or cannabis products and that is both of the following:

(1)Accredited
by an accrediting body that is independent from all other persons involved in commercial cannabis activity in the state.

(2)Licensed by the bureau.

(au)“Unique identifier” means an alphanumeric code or designation used for reference to a specific plant on a licensed premises and any cannabis or cannabis product derived or manufactured from that plant.

(av)“Youth center” has the same meaning as in Section 11353.1 of the Health and Safety Code.

SEC. 2.Section 26040 of the Business and Professions Code is amended to read:

26040.

(a)(1)There is established in state government a Cannabis Control Appeals Panel which shall consist of the following members:

(A)One member appointed by the Senate Committee on Rules.

(B)One member appointed by the Speaker of the Assembly.

(C)Three members appointed by the Governor and subject to confirmation by a majority vote of all of the members elected to the Senate.

(2)Each member, at the time of his or her initial appointment, shall be a resident of a different county from the one in which either of the other members resides. Members of
the panel shall receive an annual salary as provided for by Chapter 6 (commencing with Section 11550) of Part 1 of Division 3 of Title 2 of the Government Code.

(b)The members of the panel appointed pursuant to subparagraph (C) of paragraph (1) of subdivision (a) may be removed from office by the Governor, and the Legislature shall have the power, by a majority vote of all members elected to each house, to remove any member of the panel from office for dereliction of duty, corruption, or incompetency.

(c)A concurrent resolution for the removal of any member of the panel may be introduced in the Legislature only if 5 Members of the Senate, or 10 Members of the
Assembly, join as authors.

SEC. 3.Section 26053 of the Business and Professions Code is amended to read:

26053.

(a)All commercial cannabis activity shall be conducted between licensees, except as otherwise provided in this division.

(b)A person that holds a state testing laboratory license under this division is prohibited from licensure for any other activity, except testing, as authorized under this division. A person that holds a state testing laboratory license shall not employ an individual who is also employed by any other licensee that does not hold a state testing laboratory license.

(c)Except as provided in subdivision (b), a person may apply for and be issued more than one license under this division.

(d)Each applicant or licensee shall apply for, and if approved, shall obtain, a separate license for each location where it engages in commercial cannabis activity.

SEC. 4.Section 26055 of the Business and Professions Code is amended to read:

26055.

(a)Licensing authorities may issue state licenses only to qualified applicants.

(b)Revocation of a state license issued under this division shall terminate the ability of the licensee to operate pursuant to that license within California until a new license is obtained.

(c) A licensee shall not change or alter the premises in a manner which materially or substantially alters the premises, the usage of the premises, or the mode or character of business operation conducted from the premises, from the plan contained in the diagram on file with the application, unless and until written approval by the licensing authority has
been obtained. For purposes of this section, material or substantial physical changes of the premises, or in the usage of the premises, shall include, but not be limited to, a substantial increase or decrease in the total area of the licensed premises previously diagrammed, or any other physical modification resulting in substantial change in the mode or character of business operation.

(d)Licensing authorities shall not approve an application for a state license under this division if approval of the state license will violate the provisions of any local ordinance or regulation adopted in accordance with Section 26200.

(e)An applicant may voluntarily provide proof of a license, permit, or other authorization from the local jurisdiction verifying that the applicant is in
compliance with the local jurisdiction. An applicant that voluntarily submits a valid, unexpired license, permit, or other authorization from the local jurisdiction shall be presumed to be in compliance with all local ordinances unless the licensing authority is notified otherwise by the local jurisdiction. The licensing authority shall notify the contact person for the local jurisdiction of any applicant that voluntarily submits a valid, unexpired license, permit, or other authorization from the local jurisdiction.

(f)(1)A local jurisdiction shall provide to the bureau a copy of any ordinance or regulation related to commercial cannabis activity and the name and contact information for the person who will serve as the contact for state licensing authorities regarding commercial cannabis activity within the
jurisdiction. If a local jurisdiction does not provide a contact person, the bureau shall assume that the clerk of the legislative body of the local jurisdiction is the contact person.

(2)Whenever there is a change in a local ordinance or regulation adopted pursuant to Section 26200 or a change in the contact person for the jurisdiction, the local jurisdiction shall provide that information to the bureau.

(3)The bureau shall share the information required by this subdivision with the other licensing authorities.

(g)(1)The licensing authority shall deny an application for a license under this division for a commercial cannabis activity that the local jurisdiction has notified the bureau is prohibited
in accordance with subdivision (f). The licensing authority shall notify the contact person for the local jurisdiction of each application denied due to the local jurisdictions indication that the commercial cannabis activity for which a license is sought is prohibited by a local ordinance or regulation.

(2)Prior to issuing a state license under this division for any commercial cannabis activity, if an applicant has not provided adequate proof of compliance with local laws pursuant to subdivision (e):

(A)The licensing authority shall notify the contact person for the local jurisdiction of the receipt of an application for commercial cannabis activity within their jurisdiction.

(B)A local jurisdiction may notify
the licensing authority that the applicant is not in compliance with a local ordinance or regulation. In this instance, the licensing authority shall deny the application.

(C)A local jurisdiction may notify the licensing authority that the applicant is in compliance with all applicable local ordinances and regulations. In this instance, the licensing authority may proceed with the licensing process.

(D)If the local jurisdiction does not provide notification of compliance or noncompliance with applicable local ordinances or regulations, or otherwise does not provide notification indicating that the completion of the local permitting process is still pending, within 60 business days of receiving the inquiry from a licensing authority submitted pursuant to subparagraph (A),
the licensing authority shall make a rebuttable presumption that the applicant is in compliance with all local ordinances and regulations adopted in accordance with Section 26200, except as provided in subparagraphs (E) and (F).

(E)At any time after expiration of the 60-business-day period set forth in subparagraph (D), the local jurisdiction may provide written notification to the licensing authority that the applicant or
licensee is not in compliance with a local ordinance or regulation adopted in accordance with Section 26200. Upon receiving this notification, the licensing authority shall not presume that the applicant or licensee has complied with all local ordinances and regulations adopted in accordance with Section 26200, and may commence disciplinary action in accordance with Chapter 3 (commencing with Section 26030). If the licensing authority does not take action against the licensee before the time of the renewal of the license, the license shall not be renewed until and unless the local jurisdiction notifies the licensing authority that the licensee is once again in compliance with local ordinances.

(F)A presumption by a licensing authority pursuant to this paragraph that an applicant has complied with all local ordinances and
regulations adopted in accordance with Section 26200 shall not prevent, impair, or preempt the local government from
enforcing all applicable local ordinances or regulations against the applicant, nor shall the presumption confer any right, vested or otherwise, upon the applicant to commence or continue operating in any local jurisdiction except in accordance with all local ordinances or regulations.

(3)For purposes of this section, “notification” includes written notification or access by a licensing authority to a local jurisdiction’s registry, database, or other platform designated by a local jurisdiction, containing information specified by the licensing authority, on applicants to determine local compliance.

(h)Without limiting any other statutory exemption or categorical exemption, Division 13 (commencing with Section 21000) of the Public Resources Code does not apply to the
adoption of an ordinance, rule, or regulation by a local jurisdiction that requires discretionary review and approval of permits, licenses, or other authorizations to engage in commercial cannabis activity. To qualify for this exemption, the discretionary review in any such law, ordinance, rule, or regulation shall include any applicable environmental review pursuant to Division 13 (commencing with Section 21000) of the Public Resources Code. This subdivision shall become inoperative on July 1, 2019.

(i)A local or state public agency may charge and collect a fee from a person proposing a project pursuant to subdivision (a) of Section 21089 of the Public Resources Code.

SEC. 5.Section 26060.1 of the Business and Professions Code is amended to read:

26060.1.

(a)An application for a license for cultivation issued by the Department of Food and Agriculture shall identify the source of water supply as follows:

(1)(A)If water will be supplied by a retail water supplier, as defined in Section 13575 of the Water Code, the application shall identify the retail water supplier.

(B)Paragraphs (2) and (3) do not apply to any water subject to subparagraph (A) unless the retail water supplier has 10 or fewer customers, the applicant receives 10 percent or more of the water supplied by the retail water supplier, 25 percent or more of the water delivered by the retail
water supplier is used for cannabis cultivation, or the applicant and the retail water supplier are affiliates, as defined in Section 2814.20 of Title 23 of the California Code of Regulations.

(2)If the water supply includes a diversion within the meaning of Section 5100 of the Water Code, the application shall identify the point of diversion and the maximum amount to be diverted as follows:

(A)For an application submitted before January 1, 2019, the application shall include a copy of one of the following:

(i)A small irrigation use registration certificate, permit, or license issued pursuant to Part 2 (commencing with Section 1200) of Division 2 of the Water Code that covers the diversion.

(ii)A statement of water diversion and use filed with the State Water Resources Control Board on or before October 31, 2017, that covers the diversion and specifies the amount of water used for cannabis cultivation.

(iii)A pending application for a permit to appropriate water, filed with the State Water Resources Control Board on or before October 31, 2017.

(iv)Documentation submitted to the State Water Resources Control Board on or before January 1, 2019, demonstrating that the diversion is subject to subdivision (a), (c), (d), or (e) of Section 5101 of the Water Code.

(v)Documentation submitted to the State Water Resources Control Board on or before
October 31, 2017, demonstrating that the diversion is authorized under a riparian right and that no diversion occurred after January 1, 2010, and before January 1, 2017. The documentation shall be submitted on or accompany a form provided by the State Water Resources Control Board and shall include all of the information outlined in subdivisions (a) to (d), inclusive, and (e) of Section 5103 of the Water Code. The documentation shall also include a general description of the area in which the water will be used in accordance with subdivision (g) of Section 5103 of the Water Code and the year in which the diversion is planned to commence.

(B)For an application submitted after December 31, 2018, the application shall include a copy of one of the following:

(i)A small irrigation
use registration certificate, permit, or license issued pursuant to Part 2 (commencing with Section 1200) of Division 2 of the Water Code that covers the diversion.

(ii)A statement of water diversion and use filed with the State Water Resources Control Board that covers the diversion and specifies the amount of water used for cannabis cultivation.

(iii)Documentation submitted to the State Water Resources Control Board demonstrating that the diversion is subject to subdivision (a), (c), (d), or (e) of Section 5101 of the Water Code.

(iv)Documentation submitted to the State Water Resources Control Board demonstrating that the diversion is authorized under a riparian right and that no diversion occurred after January 1, 2010,
and in the calendar year in which the application is submitted. The documentation shall be submitted on or accompany a form provided by the State Water Resources Control Board and shall include all of the information outlined in subdivisions (a) to (d), inclusive, and (e) of Section 5103 of the Water Code. The documentation shall also include a general description of the area in which the water will be used in accordance with subdivision (g) of Section 5103 of the Water Code and the year in which the diversion is planned to commence.

(3)If water will be supplied from a groundwater extraction not subject to paragraph (2), the application shall identify the location of the extraction and the maximum amount to be diverted for cannabis cultivation in any year.

(b)The Department
of Food and Agriculture shall include in any license for cultivation all of the following:

(1)Conditions requested by the Department of Fish and Wildlife and the State Water Resources Control Board to (A) ensure that individual and cumulative effects of water diversion and discharge associated with cultivation do not affect the instream flows needed for fish spawning, migration, and rearing, and the flows needed to maintain natural flow variability; (B) ensure that cultivation does not negatively impact springs, riparian habitat, wetlands, or aquatic habitat; and (C) otherwise protect fish, wildlife, fish and wildlife habitat, and water quality. The conditions shall include, but not be limited to, the principles, guidelines, and requirements established pursuant to Section 13149 of the Water Code.

(2)Any relevant mitigation requirements the Department of Food and Agriculture identifies as part of its approval of the final environmental documentation for the cannabis cultivation licensing program as requirements that should be included in a license for cultivation. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to the identification of these mitigation measures. This paragraph does not reduce any requirements established pursuant to Division 13 (commencing with Section 21000) of the Public Resources Code.

(3)A condition that the license shall not be effective until the licensee has demonstrated compliance with Section 1602 of the Fish and Game Code or receives written verification from the Department of Fish and Wildlife that a streambed alteration agreement
is not required.

(c)The Department of Food and Agriculture shall consult with the State Water Resources Control Board and the Department of Fish and Wildlife in the implementation of this section.

(d)Notwithstanding paragraph (1) of subdivision (b), the Department of Food and Agriculture is not responsible for verifying compliance with the conditions requested or imposed by the Department of Fish and Wildlife or the State Water Resources Control Board. The Department of Fish and Wildlife or the State Water Resources Control Board, upon finding and making the final determination of a violation of a condition included pursuant to paragraph (1) of subdivision (b), shall notify the Department of Food and Agriculture, which may take appropriate action with respect to the licensee
in accordance with Chapter 3 (commencing with Section 26030).

SEC. 6.Section 26069 of the Business and Professions Code is amended to read:

26069.

(a)The department shall establish a Cannabis Cultivation Program to be administered by the secretary. The secretary shall administer this section as it pertains to the cultivation of cannabis. For purposes of this division, cannabis is an agricultural product.

(b)A person or entity shall not cultivate cannabis without first obtaining a state license issued by the department pursuant to this division.

(c)(1)The department, in consultation with, but not limited to, the bureau, shall implement a unique identification program for cannabis. In implementing the program, the department shall consider
issues including, but not limited to, water use and environmental impacts. If the State Water Resources Control Board or the Department of Fish and Wildlife finds, based on substantial evidence, that cannabis cultivation is causing significant adverse impacts on the environment in a watershed or other geographic area, the department shall not issue new licenses or increase the total number of plant identifiers within that watershed or area.

(2)(A)The department shall establish a program for the identification of permitted cannabis plants at a cultivation site during the cultivation period. A unique identifier shall be issued for each cannabis plant. The department shall ensure that unique identifiers are issued as quickly as possible to ensure the implementation of this division. The unique identifier shall be attached
at the base of each plant or as otherwise required by law or regulation.

(B)Unique identifiers shall only be issued to those persons appropriately licensed by this section.

(C)Information associated with the assigned unique identifier and licensee shall be included in the trace and track program specified in Section 26067.

(D)The department may charge a fee to cover the reasonable costs of issuing the unique identifier and monitoring, tracking, and
inspecting each cannabis plant.

(E)The department may promulgate regulations to implement this section.

(d)A city, county, or city and county may administer unique identifiers and associated identifying information but a city, county, or city and county’s identifiers shall not supplant the department’s track and trace program.

(e)(1)This section does not apply to the cultivation of cannabis in accordance with Section 11362.1 of the Health and Safety
Code or the Compassionate Use Act.

(2)Subdivision (b) does not apply to persons or entities licensed under subdivision (b) of Section 26070.5.

SEC. 7.Section 26070 of the Business and Professions Code is amended to read:

26070.

Retailers and Distributors.

(a)State licenses to be issued by the bureau related to the sale and distribution of cannabis and cannabis products are as follows:

(1)“Retailer,” for the retail sale and delivery of cannabis or cannabis products to customers. A retailer shall have a licensed premises which is a physical location from which commercial cannabis activities are conducted. A retailer’s premises may be closed to the public. A retailer may conduct sales exclusively by delivery.

(2)“Distributor,” for the distribution of cannabis and cannabis products. A distributor licensee
shall be bonded and insured at a minimum level established by the licensing authority.

(3)(A)“Microbusiness,” for the cultivation of cannabis on an area less than 10,000 square feet and to act as a licensed distributor, Level 1 manufacturer, and retailer under this division, provided such licensee can demonstrate compliance with all requirements imposed by this division on licensed cultivators, distributors, Level 1 manufacturers, and retailers to the extent the licensee engages in such activities. Microbusiness licenses that authorize cultivation of cannabis shall include the license conditions described in subdivision (b) of Section 26060.1.

(B)In coordination with each other, the licensing authorities shall establish a process by which an applicant for a
microbusiness license can demonstrate compliance with all the requirements under this division for the activities that will be conducted under the license.

(C)The bureau may enter into interagency agreements with licensing authorities to implement and enforce the provisions of this division related to microbusinesses. The costs of activities carried out by the licensing authorities as requested by the bureau pursuant to the interagency agreement shall be calculated into the application and licensing fees collected pursuant to this division, and shall provide for reimbursement to state agencies for associated costs as provided for in the interagency agreement.

(b)The bureau shall establish minimum security and transportation safety requirements for the commercial distribution and
delivery of cannabis and cannabis products. Except as provided in subdivision (d) of Section 26110, the transportation of cannabis and cannabis products shall only be conducted by persons holding a distributor license under this division or employees of those persons. Transportation safety standards established by the bureau shall include, but not be limited to, minimum standards governing the types of vehicles in which cannabis and cannabis products may be distributed and delivered and minimum qualifications for persons eligible to operate such vehicles.

(c)The driver of a vehicle transporting or transferring cannabis or cannabis products shall be directly employed by a licensee authorized to transport
or transfer cannabis or cannabis products.

(d)Notwithstanding any other law, all vehicles transporting cannabis and cannabis products for hire shall be required to have a valid motor carrier permit pursuant to Chapter 2 (commencing with Section 34620) of Division 14.85 of the Vehicle Code. The Department of the California Highway Patrol shall have authority over the safe operation of these vehicles, including, but not limited to, requiring licensees engaged in the transportation of cannabis or cannabis products to participate in the Basic Inspection of Terminals (BIT) program pursuant to Section 34501.12 of the Vehicle Code.

(e)Prior to transporting cannabis or cannabis products, a licensed distributor shall do both of the
following:

(1)Complete an electronic shipping manifest as prescribed by the licensing authority. The shipping manifest shall include the unique identifier, pursuant to Section 26069, issued by the Department of Food and Agriculture for the original cannabis product.

(2)Securely transmit the manifest to the bureau and the licensee that will receive the cannabis product. The bureau shall inform the Department of Food and Agriculture of information pertaining to commercial cannabis activity for the purpose of the track and trace program identified in Section 26067.

(f)During transportation, the licensed distributor shall maintain a physical copy of the shipping manifest and make it available upon request to agents of the
Department of Consumer Affairs and law enforcement officers.

(g)The licensee receiving the shipment shall maintain each electronic shipping manifest and shall make it available upon request to the Department of Consumer Affairs and any law enforcement officers.

(h)Upon receipt of the transported shipment, the licensee receiving the shipment shall submit to the licensing authority a record verifying receipt of the shipment and the details of the shipment.

(i)Transporting, or arranging for or facilitating the transport of, cannabis or cannabis products in violation of this chapter is grounds for disciplinary action against the license.

(j)Licensed
retailers and microbusinesses, and licensed nonprofits under Section 26070.5, shall implement security measures reasonably designed to prevent unauthorized entrance into areas containing cannabis or cannabis products and theft of cannabis or cannabis products from the premises. These security measures shall include, but not be limited to, all of the following:

(1)Prohibiting individuals from remaining on the licensee’s premises if they are not engaging in activity expressly related to the operations of the retailer.

(3)Other than limited amounts of cannabis used for display purposes, samples, or immediate sale, storing all finished cannabis and
cannabis products in a secured and locked room, safe, or vault, and in a manner reasonably designed to prevent diversion, theft, and loss.

(k)A retailer shall notify the licensing authority and the appropriate law enforcement authorities within 24 hours after discovering any of the following:

(1)Significant discrepancies identified during inventory. The level of significance shall be determined by the bureau.

(2)Diversion, theft, loss, or any criminal activity pertaining to the operation of the retailer.

(3)Diversion, theft, loss, or any criminal activity by any agent or employee of the retailer pertaining to the operation of the retailer.

(l)Beginning January 1, 2018, a licensee may sell cannabis or cannabis products that have not been tested for a limited and finite time as determined by the bureau. The cannabis or cannabis products must have a label affixed to each package containing the cannabis or cannabis products that clearly states “This product has not been tested as required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act” and must comply with any other requirement as determined by the
bureau.

SEC. 8.Section 26090 of the Business and Professions Code is amended to read:

26090.

(a)Deliveries, as defined in this division, may only be made by a licensed retailer or microbusiness, or a licensed nonprofit under Section 26070.5.

(b)All employees of a retailer, microbusiness, or nonprofit delivering cannabis or cannabis products shall carry a copy of the licensee’s current license and a government-issued identification with a photo of the employee, such as a driver’s license. The employee shall present that license and identification upon request to state and local law enforcement, employees of regulatory authorities, and other state and local agencies enforcing this division.

(c)During
delivery, the licensee shall maintain a copy of the delivery request and shall make it available upon request of the licensing authority and law enforcement officers. The delivery request documentation shall comply with state and federal law regarding the protection of confidential medical information.

(d)A customer requesting delivery shall maintain a physical or electronic copy of the delivery request and shall make it available upon request by the licensing authority and law enforcement officers.

(e)A local jurisdiction shall not prevent delivery of cannabis or cannabis products on public roads by a licensee acting in compliance with this division and local law as adopted under Section 26200.

SEC. 9.Section 26104 of the Business and Professions Code is amended to read:

26104.

(a)A licensed testing laboratory shall, in performing activities concerning cannabis and cannabis products, comply with the requirements and restrictions set forth in applicable law and regulations.

(b)The bureau shall develop procedures to do all of the following:

(1)Ensure that testing of cannabis and cannabis products occurs prior to distribution to retailers, microbusinesses, or nonprofits licensed under Section 26070.5.

(2)Specify how often licensees shall test cannabis and cannabis products, and that the cost of testing cannabis shall be borne by the
licensed cultivators and the cost of testing cannabis products shall be borne by the licensed manufacturer, and that the costs of testing cannabis and cannabis products shall be borne by a nonprofit licensed under Section 26070.5.

(3)Require destruction of harvested batches whose testing samples indicate noncompliance with health and safety standards required by the bureau, unless remedial measures can bring the cannabis or cannabis products into compliance with quality assurance standards as specified by law and implemented by the bureau.

(4)Ensure that a testing laboratory employee takes the sample of cannabis or cannabis products from the distributor’s premises for testing required by this division and that the testing laboratory employee transports the sample to the
testing laboratory.

(c)Except as provided in this division, a testing laboratory shall not acquire or receive cannabis or cannabis products except from a licensee in accordance with this division, and shall not distribute, sell, or dispense cannabis or cannabis products, from the licensed premises from which the cannabis or cannabis products were acquired or received. All transfer or transportation shall be performed pursuant to a specified chain of custody protocol.

(d)A testing laboratory may receive and test samples of cannabis or cannabis products from a qualified patient or primary caregiver only if the qualified patient or primary caregiver presents the qualified patient’s valid physician’s recommendation for cannabis for medicinal purposes. A testing laboratory shall not
certify samples from a qualified patient or primary caregiver for resale or transfer to another party or licensee. All tests performed by a testing laboratory for a qualified patient or primary caregiver shall be recorded with the name of the qualified patient or primary caregiver and the amount of cannabis or cannabis product received.

SEC. 10.Section 26130 of the Business and Professions Code is amended to read:

26130.

(a)The State Department of Public Health shall promulgate regulations governing the licensing of cannabis manufacturers and standards for the manufacturing, packaging, and labeling of all manufactured cannabis products. Licenses to be issued are as follows:

(1)“Manufacturing Level 1,” for sites that manufacture cannabis products using nonvolatile solvents, or no solvents.

(b)For purposes of this section, “volatile solvents” shall have the same meaning as in
paragraph (3) of subdivision (b) of Section 11362.3 of the Health and Safety Code, unless otherwise provided by law or regulation.

(c)Edible cannabis products shall be:

(1)Not designed to be appealing to children or easily confused with commercially sold candy or foods that do not contain cannabis.

(2)Produced and sold with a standardized concentration of cannabinoids not to exceed 10 milligrams tetrahydrocannabinol (THC) per serving.

(3)Delineated or scored into standardized serving sizes if the cannabis product contains more than one serving and is an edible cannabis product in solid form.

(4)Homogenized to ensure uniform disbursement of cannabinoids throughout the product.

(5)Manufactured and sold under sanitation standards established by the State Department of Public Health, in consultation with the bureau, that are similar to the standards for preparation, storage, handling, and sale of food products.

(6)Provided to customers with sufficient information to enable the informed consumption of the product, including the potential effects of the cannabis product and directions as to how to consume the cannabis product, as necessary.

(7)Marked with a universal symbol, as determined by the State Department of Public Health through regulation.

(d)Cannabis, including concentrated cannabis, included in a cannabis product manufactured in compliance with law is not considered an adulterant under state law.

SEC. 11.Section 26140 of the Business and Professions Code is amended to read:

26140.

(a)An A-licensee shall not:

(1)Sell cannabis or cannabis products to persons under 21 years of age.

(2)Allow any person under 21 years of age on its premises, unless the A-licensee holds an M-license and the licensed premises for the A-license and M-license are the same.

(3)Employ or retain persons under 21 years of age.

(4)Sell or transfer cannabis or cannabis products unless the person to whom the cannabis or cannabis product is to be sold first presents documentation which reasonably appears to be
a valid government-issued identification card showing that the person is 21 years of age or older.

(b)Persons under 21 years of age may be used by peace officers in the enforcement of this division and to apprehend licensees, or employees or agents of licensees, or other persons who sell or
furnish cannabis to minors. Notwithstanding any provision of law, any person under 21 years of age who purchases or attempts to purchase any cannabis while under the direction of a peace officer is immune from prosecution for that purchase or attempt to purchase cannabis. Guidelines with respect to the use of persons under 21 years of age as decoys shall be adopted and published by the bureau in accordance with the rulemaking portion of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).

(c)Notwithstanding subdivision (a), an M-licensee may:

(1)Allow on the premises any person 18 years of age or older who possesses a valid government-issued identification card, and either a
valid county-issued identification card under Section 11362.712 of the Health and Safety Code or a valid physician’s recommendation for himself or herself or for a person for whom he or she is a primary caregiver.

(2)Allow any person 21 years of age or older on its premises if the M-licensee holds an A-license and the licensed premises for the M-license and A-license are the same.

(3)Sell cannabis, cannabis products, and cannabis accessories to a person 18 years of age or older who possesses a valid government-issued identification card and either a valid county-issued identification card under Section 11362.712 of the Health and Safety Code or a valid physician’s recommendation for himself or herself or for a person for whom he or she is a primary caregiver.

(4)The bureau may establish requirements for the purchase of cannabis, cannabis products, or cannabis accessories by a primary caregiver for a patient to ensure that the status of a person as a primary caregiver is verified.

SEC. 12.Section 26227.9 of the Business and Professions Code is amended to read:

26227.9.

(a)Any association may, upon resolution adopted by its board of directors, enter into all necessary and proper contracts and agreements and make all necessary and proper stipulations and arrangements with another cannabis cooperative or association that is formed in this state for the cannabis cooperative and more economical carrying on of its business or any part of its business.

(b)Any two or more associations may, by agreement between them, unite in employing and using, or may separately employ and use, the same personnel, methods, means, and agencies for carrying on and conducting their respective business.

SEC. 13.Section 11553 of the Government Code is amended to read:

11553.

(a)Effective January 1, 1988, an annual salary of eighty-one thousand six hundred thirty-five dollars ($81,635) shall be paid to each of the following:

(1)Chairperson of the Unemployment Insurance Appeals Board.

(2)Chairperson of the Agricultural Labor Relations Board.

(3)President of the Public Utilities Commission.

(4)Chairperson of the Fair Political Practices Commission.

(5)Chairperson of the Energy Resources Conservation and Development
Commission.

(6)Chairperson of the Public Employment Relations Board.

(7)Chairperson of the Workers’ Compensation Appeals Board.

(8)Administrative Director of the Division of Industrial Accidents.

(9)Chairperson of the State Water Resources Control Board.

(10)Chairperson of the Cannabis Control Appeals Panel.

(b)The annual compensation provided by this section shall be increased in any fiscal year in which a general salary increase is provided for state employees. The amount of the increase provided by this section shall be comparable to, but
shall not exceed, the percentage of the general salary increases provided for state employees during that fiscal year.

(a)Effective January 1, 1988, an annual salary of seventy-nine thousand one hundred twenty-two dollars ($79,122) shall be paid to the following:

(1)Member of the Agricultural Labor Relations Board.

(2)Member of the State Energy Resources Conservation and Development Commission.

(3)Member of the Public Utilities Commission.

(4)Member of the Public Employment Relations Board.

(5)Member of the
Unemployment Insurance Appeals Board.

(6)Member of the Workers’ Compensation Appeals Board.

(7)Member of the State Water Resources Control Board.

(8)Member of the Cannabis Control Appeals Panel.

(b)The annual compensation provided by this section shall be increased in any fiscal year in which a general salary increase is provided for state employees. The amount of the increase provided by this section shall be comparable to, but shall not exceed, the percentage of the general cost-of-living salary increases provided for state employees during that fiscal year.

SEC. 15.Section 11357 of the Health and Safety Code is amended to read:

11357.

(a)Except as authorized by law, possession of not more than 28.5 grams of cannabis, or not more than eight grams of concentrated cannabis, or both, shall be punished or adjudicated as follows:

(1)Persons under 18 years of age are guilty of an infraction and shall be required to:

(A)Upon a finding that a first offense has been committed, complete four hours of drug education or counseling and up to 10 hours of community service over a period not to exceed 60 days.

(B)Upon a finding that a second offense or subsequent offense has been committed, complete six
hours of drug education or counseling and up to 20 hours of community service over a period not to exceed 90 days.

(2)Persons at least 18 years of age but less than 21 years of age are guilty of an infraction and punishable by a fine of not more than one hundred dollars ($100).

(b)Except as authorized by law, possession of more than 28.5 grams of cannabis, or more than eight grams of concentrated cannabis, shall be punished as follows:

(1)Persons under 18 years of age who possess more than 28.5 grams of cannabis or more than eight grams of concentrated cannabis, or both, are guilty of an infraction and shall be required to:

(A)Upon a finding that
a first offense has been committed, complete eight hours of drug education or counseling and up to 40 hours of community service over a period not to exceed 90 days.

(B)Upon a finding that a second or subsequent offense has been committed, complete 10 hours of drug education or counseling and up to 60 hours of community service over a period not to exceed 120 days.

(2)Persons 18 years of age or older who possess more than 28.5 grams of cannabis, or more than eight grams of concentrated cannabis, or both, shall be punished by imprisonment in a county jail for a period of not more than six months or by a fine of not more than five hundred dollars ($500), or by both that fine and imprisonment.

(c)Except as
authorized by law, a person 18 years of age or older who possesses not more than 28.5 grams of cannabis, or not more than eight grams of concentrated cannabis, upon the grounds of, or within, any school providing instruction in kindergarten or any of grades 1 to 12, inclusive, during hours the school is open for classes or school-related programs is guilty of a misdemeanor and shall be punished as follows:

(1)A fine of not more than two hundred fifty dollars ($250), upon a finding that a first offense has been committed.

(2)A fine of not more than five hundred dollars ($500), or by imprisonment in a county jail for a period of not more than 10 days, or both, upon a finding that a second or subsequent offense has been committed.

(d)Except as authorized by law, a person under 18 years of age who possesses not more than 28.5 grams of cannabis, or not more than eight grams of concentrated cannabis, upon the grounds of, or within, any school providing instruction in kindergarten or any of grades 1 to 12, inclusive, during hours the school is open for classes or school-related programs is guilty of an infraction and shall be punished in the same manner provided in paragraph (1) of subdivision (b).

SEC. 16.Section 34010 of the Revenue and Taxation Code is amended to read:

34010.

For purposes of this part:

(a)“Arm’s length transaction” shall mean a sale entered into in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.

(b)“Average market price” shall mean:

(1)In an arm’s length transaction, the average market price means the average retail price determined by the wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up, as determined by the
department on a biannual basis in six-month intervals.

(2)In a nonarm’s length transaction, the average market price means the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.

(c)“Department” shall mean the California Department of Tax and Fee Administration or its successor agency.

(d)“Bureau” shall mean the Bureau of Cannabis Control within the Department of Consumer Affairs.

(f)“Cannabis” shall have the same meaning as set forth in Section 11018 of the
Health and Safety Code and shall also mean medicinal cannabis.

(g)“Cannabis products” shall have the same meaning as set forth in Section 11018.1 of the Health and Safety Code and shall also mean medicinal concentrates and medicinal cannabis products.

(h)“Cannabis flowers” shall mean the dried flowers of the cannabis plant as defined by the board.

(i)“Cannabis leaves” shall mean all parts of the cannabis plant other than cannabis flowers that are sold or consumed.

(j)“Cannabis retailer” shall mean a person required to be licensed as a retailer, microbusiness, or nonprofit pursuant to Division 10 (commencing with Section 26000) of the Business and
Professions Code.

(k)“Cultivator” shall mean all persons required to be licensed to cultivate cannabis pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.

(l)“Distributor” shall mean a person required to be licensed as a distributor pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.

(m)“Enters the commercial market” shall mean cannabis or cannabis product, except for immature cannabis plants and seeds, that complete and comply with a quality assurance review and testing, as described in Section 26110 of the Business and Professions Code.

(n)“Gross
receipts” shall have the same meaning as set forth in Section 6012.

(o)“Microbusiness” shall have the same meaning as set forth in paragraph (3) of subdivision (a) of Section 26070 of the Business and Professions Code.

(p)“Nonprofit” shall have the same meaning as set forth in Section 26070.5 of the Business and Professions Code.

(q)“Person” shall have the same meaning as set forth in Section 6005.

(r)“Retail sale” shall have the same meaning as set forth in Section 6007.

(s)“Sale” and “purchase” shall mean any change of title or possession, exchange, or barter, conditional or otherwise, in any manner
or by any means whatsoever, for consideration.

(t)“Transfer” shall mean to grant, convey, hand over, assign, sell, exchange, or barter, in any manner or by any means, with or without consideration.

(u)“Unprocessed cannabis” shall include cannabis flowers, cannabis leaves, or other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers.

(v)“Manufacturer” shall mean a person required to be licensed as a manufacturer pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.

SEC. 17.Section 34011 of the Revenue and Taxation Code is amended to read:

34011.

(a) (1) Effective January 1, 2018, a cannabis excise tax shall be imposed upon purchasers of cannabis or cannabis products sold in this state at the rate of 15 percent of the average market price of any retail sale by a cannabis retailer. A purchaser’s liability for the cannabis excise tax is not extinguished until the cannabis excise tax has been paid to this state except that an invoice, receipt, or other document from a cannabis retailer given to the purchaser pursuant to this subdivision is sufficient to relieve the purchaser from further liability for the tax to which the invoice, receipt, or other document refers.

(2)Each cannabis retailer shall
provide a purchaser with an invoice, receipt, or other document that includes a statement that reads: “The cannabis excise taxes are included in the total amount of this invoice.”

(3)The department may prescribe other means to display the cannabis excise tax on an invoice, receipt, or other document from a cannabis retailer given to the purchaser.

(b)(1)A distributor in an arm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to the cannabis retailer. A distributor in a nonarm’s length transaction shall collect the cannabis excise tax from the cannabis retailer on or before 90 days after the sale or transfer of cannabis or cannabis product to
the cannabis retailer, or at the time of retail sale by the cannabis retailer, whichever is earlier. A distributor shall report and remit the cannabis excise tax to the department pursuant to Section 34015. A cannabis retailer shall be responsible for collecting the cannabis excise tax from the purchaser and remitting the cannabis excise tax to the distributor in accordance with rules and procedures established under law and any regulations adopted by the department.

(2)A distributor shall provide an invoice, receipt, or other similar document to the cannabis retailer that identifies the licensee receiving the product, the distributor from which the product originates, including the associated unique identifier, the amount of cannabis excise tax, and any other information deemed necessary by the department. The department may authorize other
forms of documentation under this paragraph.

(c)The excise tax imposed by this section shall be in addition to the sales and use tax imposed by the state and local governments.

(d)Gross receipts from the sale of cannabis or cannabis products for purposes of assessing the sales and use tax under Part 1 (commencing with Section 6001) shall include the tax levied pursuant to this section.

(e)Cannabis or cannabis products shall not be sold to a purchaser unless the excise tax required by law has been paid by the purchaser at the time of sale.

(f)The sales and use taxes imposed by Part 1 (commencing with Section 6001) shall not apply to retail sales of medicinal
cannabis, medicinal cannabis concentrate, edible medicinal cannabis products, or topical cannabis as those terms are defined in Division 10 (commencing with Section 26000) of the Business and Professions Code when a qualified patient or primary caregiver for a qualified patient provides his or her card issued under Section 11362.71 of the Health and Safety Code and a valid government-issued identification card.

SEC. 18.Section 34012 of the Revenue and Taxation Code is amended to read:

34012.

(a)Effective January 1, 2018, there is hereby imposed a cultivation tax on all harvested cannabis that enters the commercial market upon all cultivators. The tax shall be due after the cannabis is harvested and enters the commercial market.

(2)The tax for cannabis leaves shall be set at two dollars and seventy-five cents ($2.75) per dry-weight ounce.

(b)The department may adjust the tax rate for cannabis leaves annually to reflect fluctuations in the relative
price of cannabis flowers to cannabis leaves.

(c)The department may from time to time establish other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers. These categories shall be taxed at their relative value compared with cannabis flowers.

(d)The department may prescribe by regulation a method and manner for payment of the cultivation tax that utilizes tax stamps or state-issued product bags that indicate that all required tax has been paid on the product to which the tax stamp is affixed or in which the cannabis is packaged.

(e)The tax stamps and product bags shall be of the designs, specifications, and
denominations as may be prescribed by the department and may be purchased by any licensee under Division 10 (commencing with Section 26000) of the Business and Professions Code.

(f)Subsequent to the establishment of a tax stamp program, the department may by regulation provide that cannabis shall not be removed from a licensed cultivation facility or transported on a public highway unless in a state-issued product bag bearing a tax stamp in the proper denomination.

(g)The tax stamps and product bags shall be capable of being read by a scanning or similar device and must be traceable utilizing the track and trace system pursuant to Section 26068 of the Business and Professions Code.

(h) Cultivators shall be
responsible for payment of the tax pursuant to regulations adopted by the department. A cultivator’s liability for the tax is not extinguished until the tax has been paid to this state except that an invoice, receipt, or other document from a distributor or manufacturer given to the cultivator pursuant to paragraph (3) is sufficient to relieve the cultivator from further liability for the tax to which the invoice, receipt, or other document refers. Cannabis shall not be sold unless the tax has been paid as provided in this part.

(1)A distributor shall collect the cultivation tax from a cultivator on all harvested cannabis that enters the commercial market. This paragraph shall not apply where a cultivator is not required to send, and does not send, the harvested cannabis to a distributor.

(2)(A)A manufacturer shall collect the cultivation tax from a cultivator on the first sale or transfer of unprocessed cannabis by a cultivator to a manufacturer. The manufacturer shall remit the cultivation tax collected on the cannabis product sold or transferred to a distributor for quality assurance, inspection, and testing, as described in Section 26110 of the Business and Professions Code. This paragraph shall not apply where a distributor collects the cultivation tax from a cultivator pursuant to paragraph (1).

(B)Notwithstanding subparagraph (A), the department may prescribe a substitute method and manner for collection and remittance of the cultivation tax under this paragraph, including a method and manner for collection of the cultivation tax by a distributor.

(3)A distributor or manufacturer shall provide to the cultivator, and a distributor that collects the cultivation tax from a manufacturer pursuant to paragraph (2) shall provide to the manufacturer, an invoice, receipt, or other similar document that identifies the licensee receiving the product, the cultivator from which the product originates, including the associated unique identifier, the amount of cultivation tax, and any other information deemed necessary by the department. The department may authorize other forms of documentation under this paragraph.

(4)The department may adopt regulations prescribing procedures for the refund of cultivation tax collected on cannabis or cannabis product that fails quality assurance, inspection, and testing as described in Section 26110 of
the Business and Professions Code.

(i)All cannabis removed from a cultivator’s premises, except for plant waste, shall be presumed to be sold and thereby taxable under this section.

(j)The tax imposed by this section shall be imposed on all cannabis cultivated in the state pursuant to rules and regulations promulgated by the department, but shall not apply to cannabis cultivated for personal use under Section 11362.1 of the Health and Safety Code or cultivated by a qualified patient or primary caregiver in accordance with the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code).

(k)Beginning January 1, 2020, the rates set forth in subdivisions (a), (b), and (c) shall be adjusted by the
department annually thereafter for inflation.

(l)The Department of Food and Agriculture is not responsible for enforcing any provisions of the cultivation tax.

SEC. 19.Section 34012.5 of the Revenue and Taxation Code is amended to read:

34012.5.

(a)The cultivation tax and cannabis excise tax required to be collected by the distributor, or required to be collected by the manufacturer pursuant to paragraph (2) of subdivision (h) of Section 34012, and any amount unreturned to the cultivator or cannabis retailer that is not tax but was collected from the cultivator or cannabis retailer under the representation by the distributor or the manufacturer that it was tax constitute debts owed by the distributor or the manufacturer to this state.

(b)A distributor or manufacturer that has collected any amount of tax in excess of the amount of tax imposed by this part and actually due from a cultivator or cannabis retailer, may refund such amount
to the cultivator or cannabis retailer, even though such tax amount has already been paid over to the department and no corresponding credit or refund has yet been secured. The distributor or manufacturer may claim credit for that overpayment against the amount of tax imposed by this part that is due upon any other quarterly return, providing that credit is claimed in a return dated no later than three years from the date of overpayment.

(c)Any tax collected from a cultivator or cannabis retailer that has not been remitted to the department shall be deemed a debt owed to the State of California by the person required to collect and remit the tax.

SEC. 20.Section 55044 of the Revenue and Taxation Code is amended to read:

55044.

(a)If the department finds that a person’s failure to make a timely return or payment is due to reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, the person may be relieved of the penalty provided by Sections 34013, 55042, 55050, and 55086.

(b)Except as provided in subdivision (c), any person seeking to be relieved of the penalty shall file with the department a statement, under penalty of perjury, setting forth the facts upon which he or she bases his or her claim for relief.

(c)The department shall establish criteria that provide for efficient resolution of requests for relief pursuant to this section.

SEC. 21.

The amount of two hundred fifty thousand dollars ($250,000) is hereby appropriated from the Cannabis Control Fund to the Cannabis Control Appeals Panel to be used for costs associated with additional panel members provided by the Medicinal and Adult-Use Cannabis Regulation and Safety Act.

SEC. 22.

The Legislature finds and declares that this act is consistent with and furthers the purposes of the Control, Regulate and Tax Adult Use of Marijuana Act as stated in Section 3 of that act.

SEC. 23.

This act is a bill providing for appropriations related to the Budget Bill within the meaning of subdivision (e) of Section 12 of Article IV of the California Constitution, has been identified as related to the budget in the Budget Bill, and shall take effect immediately.